Lyus & another v Prowsa Developments Ltd & others

Transcription

1 Lyus & another v Prowsa Developments Ltd & others LAND; Land Registration: TRUSTS CHANCERY DIVISION DILLON J 18, 19 NOVEMBER, 21 DECEMBER 1981 Trust and trustee Constructive trust Sale of registered land Vendor agreeing to sell land to plaintiffs and erect house on it Vendor going into liquidation Vendor s bank selling land to defendant in exercise of mortgagee s power of sale Contract between bank and defendant stipulating that sale subject to plaintiffs contract with vendor Whether stipulation imposing constructive trust on defendant to give effect to plaintiffs contract Whether registration giving defendant absolute title free from plaintiffs unregistered interest Land Registration Act 1925, ss 20(1), 34(4). A company borrowed money from a bank to develop an estate. A mortgage executed by the company in favour of the bank to secure the borrowings was registered as a legal charge against the registered title to the estate. Subsequently, on 30 January 1978 the company, with the bank s consent, entered into a contract with the plaintiffs to sell them a plot on the estate and to build on it a house to specifications already agreed by the plaintiffs, for the sum of 14,250. The plaintiffs paid a deposit of 1,425 to the Company, contracted to sell their existing house and arranged for a mortgage to cover the excess required to complete the purchase from the company. At all times the plaintiffs wished to complete the purchase and were in a financial position to do so. Before the house was completed the company became insolvent and was compulsorily wound up in May Thereafter it became impossible for the company to perform its contract with the plaintiffs. The bank, which was under no obligation to the plaintiffs to complete their contract with the company, exercised its power of sale as mortgagee by selling part of the estate, including the plaintiffs plot, to the first defendant by a contract dated 18 October That contract contained a clause (cl 11) that the sale to the first defendant was subject to and with the benefit of the plaintiffs contract of 30 January The first defendant was fully aware of the plaintiffs contract when entering into its own contract, and moreover, gave the bank an assurance that the interests of contractual purchasers of plots in the land would be dealt with quickly and to the 953 purchasers satisfaction. The sale to the first defendant was completed by a transfer dated 16 November 1979 which contained no reference to the plaintiffs contract of 30 January Later, by a contract dated 13 December 1979 the first defendant sold the plot and other parts of the estate to the second defendants. The contract of 13 December contained a special condition that the sale to the second defendants was subject to the plaintiff s contract of 30 January 1978 in so far as it was enforceable against the first defendant. The sale to the second defendants was completed by a transfer dated 2 January 1980, which also did not refer to the plaintiffs contract. The respective transfers to the first and second defendants were both registered against the title to the estate. However, at the time of registration there was apparently no reference on the register to the plaintiff s contract of 30 January The plaintiffs brought an action against the first and second defendants seeking, inter alia, specific performance of their contract of 30 January 1978 on the ground that the first defendant, by virtue of cl 11 of its contract of 18 October 1979 with the bank, was bound by a constructive trust to complete the contract of 30 January The second defendants conceded that if cl 11 did impose such a trust on the first defendant the effect of the special condition in the second defendants contract was to impose a similar trust on the second defendants. The defendants contended (i) that lack of mutuality between them and the plaintiffs prevented the plaintiffs from setting up a constructive trust against them, and (ii) that they were protected from any unregistered interest which the plaintiffs might have in the land by ss 20(1)a and 34(4)b of the Land Registration Act 1923 since under s 20 the effect of the registration of disposition of a freehold title to a transferee was to confer on him an absolute title subject to entries on the register and overriding interests but free from all other estates and interests whatsoever and under s 34(4) the same protection was extended to the purchase from a mortgagee acting under a power of sale.

2 a Section 20, so far as material, provides: In the case of a freehold estate registered with an absolute title, a disposition of the registered land for valuable consideration shall, when registered, confer on the transferee an estate in fee simple subject (a) to the incumbrances and other entries, if any, appearing on the register; and (b) unless the contrary is expressed on the register, to the overriding interests, if any, affecting the estate transferred or created, but free from all other estates and interests whatsoever, and the disposition shall operate in like manner as if the registered transferor were (subject to any entry to the contrary in the register) entitled to the registered land in fee simple in possession for his own benefit. b Section 34(4), so far as material, provides: A sale by [the proprietor of a charge] under the power of sale shall operate and be completed by registration in the same manner, as nearly as may be as a transfer for valuable consideration by the proprietor of the land at the time of the registration of the charge would have operated or been completed, and, as respects the land transferred, the charge and all incumbrances and entries inferior thereto shall be cancelled. Held The plaintiffs were entitled to an order of specific performance of their contract of 30 January 1978 against the second defendants, for the following reasons (1) Having regard to the fact that cl 11 of the contract of 18 October 1979 between the bank and the first defendant had not been inserted solely for the protection of the bank as vendor, since the bank was under no legal obligation to the plaintiffs, cl 11 amounted to a stipulation that the first defendant would on acquiring the land give effect to the plaintiffs contract and as such was a stipulation in the bargain between the bank and the first defendant that a defined beneficial interest in the property would be taken by the plaintiffs, thereby giving rise to a constructive trust in favour of the plaintiffs that the first defendant would give effect to the plaintiffs contract. A constructive trust was similarly imposed on the second defendants by virtue of the special condition in their contract with the first defendant. The fact that there was lack of mutuality between the plaintiffs and the defendants did not prevent a constructive trust arising but was only material to the question whether specific performance of the plaintiffs contract ought to be granted (see p 959 g to j, p 960 h j and p 961 d to h, post); Banister v Bannister [1948] 2 All ER 133, dictum of Lord Denning MR in Binions v Evans [1972] 2 All ER at 76, and Price v Strange [1977] 3 All ER 371 applied; Re Schebsman [1943] 2 All ER 768 considered and explained. (2) Although it was not fraud for a person to rely on the legal rights conferred by 954 ss 20(1) and 34(4) of the 1925 Act in order to obtain an absolute title free from all other estates and interests whatsoever, nevertheless the Act could not be used as an instrument of fraud, and for the first defendant to refuse to give effect to the plaintiffs contract in reliance on ss 20(1) and 34(4) would be to use the Act as an instrument of fraud in order to resile from a positive stipulation in the bargain under which it had obtained the land. Accordingly, notwithstanding the provisions of the 1925 Act, the first defendant (and therefore the second defendants) was required by reason of there being a constructive trust in favour of the plaintiffs to give effect to the plaintiffs contract (see p 962 a b and e to h, post); Rochefoucauld v Boustead [1897] 1 Ch 196 applied; Miles v Bull (No 2) [1969] 3 All ER 1585 distinguished. Notes For constructive trusts, see 38 Halsbury s Laws (3rd edn) 855, paras 1440, 1441, and for cases on the subject, see 47 Digest (Repl) , For the Land Registration Act 1925, ss 20, 34, see 27 Halsbury s Statutes (3rd edn) 801, 813. Cases referred to in judgment Bannister v Bannister [1948] 2 All ER 133, CA, 47 Digest (Repl) 101, 733.

3 Beatty v Guggenheim Exploration Co (1919) 225 NY 380. Beswick v Beswick [1967] 2 All ER 1197, [1968] AC 58, [1967] 3 WLR 932, HL, 12 Digest (Reissue) 49, 256. Binions v Evans [1972] 2 All ER 70, [1972] Ch 359, [1972] 2 WLR 729, CA, Digest (Cont Vol D) 814, 2771a. Clore v Theatrical Properties Ltd and Westby & Co Ltd [1936] 3 All ER 483, CA, 31(1) Digest (Reissue) 213, Debtor, Re a, ex p Trustee v Solomon [1966] 3 All ER 255; sub nom Re Solomon, a bankrupt, ex p Trustee of the Property of the Bankrupt v Solomon [1967] Ch 573, [1967] 2 WLR 172, 27(1) Digest (Reissue) 95, 686. Gissing v Gissing [1970] 2 All ER 780, [1971] AC 886, [1970] 3 WLR 255, HL, 27(1) Digest (Reissue) 311, Halsall v Brizell [1957] 1 All ER 371, [1957] Ch 169, [1957] 2 WLR 123, Digest (Cont Vol B) 641, 2719a. King v Allen (David) & Sons, Billposting, Ltd [1916] 2 AC 54, [ ] All ER Rep 268, HL, 12 Digest (Reissue) 428, Midland Bank Trust Co Ltd v Green [1981] 1 All ER 153, [1981] AC 513, [1981] 2 WLR 28, HL. Miles v Bull (No 2) [1969] 3 All ER I585, 27(1) Digest (Reissue) 98, 699. Pallant v Morgan [1952] 2 All ER 951, [1953] Ch 43, 44 Digest (Repl) 35, 247. Price v Strange [1977] 3 All ER 371, [1978] Ch 337, [1977] 3 WLR 943, CA, Digest (Cont Vol E) 572, 110a. Rochefoucauld v Boustead [1897] 1 Ch 196, CA, 12 Digest (Reissue) 211, Schebsman, Re, ex p Official Receiver, Trustee v Cargo Superintendents (London) Ltd [1943] 2 All ER 768, [1944] Ch 83, CA, 5 Digest (Reissue) 694, Stirling v Maitland (1864) 5 B & S 841, [ ] All ER Rep 358, 122 ER 1043, 12 Digest (Reissue) 761, White v Bijou Mansions Ltd [1938] 1 All ER 546, [1938] Ch 351, CA; affg [1937] 3 All ER 269, [1937] Ch 610, 38 Digest (Repl) 881, 921. Action By a writ issued on 17 June 1980 and a statement of claim dated 21 October 1980 the plaintiffs, Edward Alfred Lyus and Margaret Rose Lyus, claimed against the first defendants, Prowsa Developments Ltd, and the second defendants, Derek Arthur Enefer and Dennis Peter Enefer, (1) a declaration that an agreement dated 30 January 1978 between the plaintiffs and Pennock, Haste and Howarth Ltd (the vendor) to sell to the plaintiffs for 14,250 freehold property known as plot 29, St Martin s Green Estate, Trimley St Martin, Suffolk, was binding on the defendants; (2) specific performance of 955 that agreement; (3) damages in addition to or in lieu of specific performance and (4) alternatively, damages for breach of contract. The facts are set out in the judgment.

4 Charles Purle for the plaintiffs. Hedley Marten for the first defendants. Paul Hampton for the second defendants. Cur adv vult 21 December The following opinions were delivered. DILLON J, (read the following judgment). This action raises a question of law which I have found of considerable difficulty. The basic facts lie, however, in a small compass and are not in dispute. Around the beginning of 1978, the plaintiffs, Mr and Mrs Lyus, had occasion to move from Essex to Suffolk. They had to find a house in Suffolk, and they found an estate called the St Martin s Green Estate at Trimley St Martin which was being developed by a company called Pennock, Haste and Howarth Ltd. I shall call that company the vendor company. By a contract in writing dated 30 January 1978, and made between the vendor company of the one part and the plaintiffs of the other part, the vendor company agreed to sell and the plaintiffs agreed to purchase plot 29 of the St Martin s Green Estate for the sum of 14,250. The plot was to be transferred together with a house built by the vendor company thereon, and completion was to take place not later than ten days after written notification had been given to the plaintiffs or their solicitors that the building of the property had been substantially completed. The contract does not itself indicate what type of house was to be built on the plot, but there is no doubt that working drawings, with a specification on them, were produced to the plaintiffs and were approved by them, and they were shown a completed version on another plot of the type of house they wanted. There is no doubt, therefore, what type of house was to be built, or what work is required to build it. On entering into the contract, the plaintiffs paid a deposit of 1,425 to the vendor company s solicitors as agents for the vendor company. In addition, in order to put themselves in a position in which they would be able to complete the contract as soon as the house was substantially completed, they contracted to sell the house that they then owned at Benfleet, and they arranged for a building society mortgage for the small balance they would require over and above the net proceeds of the Benfleet house to complete their purchase under the contract of 30 January It is formally asserted on the pleadings that the plaintiffs at some stage impliedly abandoned the contract of 30 January 1978, or are barred by laches from enforcing it. Those allegations were, however, rightly abandoned at the trial. The plaintiffs have at all times been extremely keen to complete their purchase, and been in a financial position to do so, provided that the house is first substantially completed fit for occupation. The formidable difficulties they encountered have not been of their making. At the time of the contract, plot 29 was an empty plot, and the building of the house had not begun. It was then begun by the vendor company, but there were delays. The vendor company became, if it was not already, insolvent, and on 15 May 1978 it was ordered to be compulsorily wound up. The plaintiffs solicitors endeavoured to persuade firstly the Official Receiver, and then the private liquidator who replaced him as liquidator of the vendor company, to complete the building of the plaintiffs house, but the answer was that the vendor company was in no position to do so. I have no doubt that there was no possibility at any time after the winding-up order was made of the vendor company performing its obligations to the plaintiffs. As is commonly the case with building development, the development by the vendor company of the St Martin s Green Estate was financed by bank borrowing. The bank concerned, National Westminster, held, initially through its associate County Bank from which it in due course took a transfer, charges by way of legal mortgage on the estate, including plot 29. These charges were prior in date to the plaintiffs contract. The obvious and inevitable course after the vendor company had gone into liquidation was for the bank to exercise its power of sale as mortgagee over the estate. The plaintiffs contract with the vendor company of

5 30 January 1978 had been entered into by the vendor company with the consent of the bank as mortgagee, but the bank had not had 956 any negotiations with the plaintiffs and the bank was not a party to, or bound by, the contract. In particular, the bank was under no liability to the plaintiffs or anyone else to complete the building of the plaintiffs house. There is no doubt at all that the bank could have sold the estate, and plot 29 in particular, free from the plaintiffs contract. If the bank had done that, it is indisputable that the plaintiffs would have had no claim whatsoever against the purchaser. The title to the estate was registered at HM Land Registry. The plaintiffs solicitors had very properly registered a caution against the title to protect the contract, but the bank by virtue of its prior charge was in a position to override the caution and transfer plot 29 to a purchaser free from all interest of the plaintiffs. In that event, the plaintiffs only rights would have been to prove for damages in the liquidation of the vendor company, and, it would seem, to be repaid their deposit by the National House Building Council under collateral arrangements, the details of which I do not need to set out. In fact, however, the bank chose to sell plot 29 subject to, and with the benefit of, the plaintiffs contract. The purchaser was the first defendant in these proceedings, and the contract is dated 18 October The contract comprised other land besides plot 29, and the total price payable by the first defendants was 92,500. The clause relevant to the plaintiffs contract, and the only clause to which I need refer at the moment, is cl 11 which provided, so far as material, that the property contracted to be sold to the first defendant was sold subject to, but with the benefit of, the agreement dated 30 January 1978, made between the vendor company and the plaintiffs in respect of plot 29. The question I have to decide is whether cl 11 gave the plaintiffs the right to enforce their contract of 30 January 1978 against the first defendant. There is no doubt that the first defendant entered into its agreement with the bank of 18 October 1979 with full knowledge of the plaintiffs contract. Indeed, in a letter to the bank s agents, Messrs Strutt and Parker, of 27 June 1979, the first defendant s solicitors had given an assurance that their client would take all reasonable steps in its power to make sure that the interests of contractual purchasers were dealt with quickly and to their satisfaction. The primary case for the plaintiffs is founded on the judgment of Lord Denning MR in Binions v Evans [1972] 2 All ER 70, [1972] Ch 359. It is submitted that it follows from that judgment, and from the general principles of which it is an illustration, that on accepting the land comprised in the agreement of 18 October 1979, the first defendant became bound by a constructive trust for the benefit of the plaintiffs by virtue of cl 11 to complete and carry into effect the plaintiffs contract of 30 January 1978 in respect of plot 29. It is alternatively submitted, albeit faintly and with the hesitation inevitable whenever s 56 is invoked, that s 56 of the Law of Property Act 1925 entitles the plaintiffs to enforce cl 11 against the first defendant by way of a decree for specific performance of the contract of 30 January Before examining these contentions, I should complete the history of the facts. The first defendant completed its purchase from the bank under the agreement of 18 October 1979 by a transfer which is dated 16 November That transfer contains no reference at all to the plaintiffs or their contract, but it has not been suggested that the absence of any such references in the transfer deprives the plaintiffs of rights if cl 11 has given them rights. The first defendant thereupon resold plot 29 and certain other parts of the land of Derek Arthur Enefer and Dennis Peter Enefer, who are described as the second defendants and who are themselves builders. The first defendant s contract with the second defendants is dated 13 December The total price under it is 57,400. Special condition (b) provided that the property was sold subject to the plaintiffs contract of 30 January 1978 in respect of plot 29, so far, if at all, as it may have been enforceable against the first defendant. It has been common ground that if the effect of cl 11 was to impose a constructive trust on the first defendant, then the effect of special condition (b) as to impose a similar trust on the second defendants. I have, therefore, to concentrate on cl 11, and the sale by the bank to the first defendant. The sale by the first defendant to the second defendants was completed by a transfer dated 2 January 1980, which again contains no reference to the plaintiffs or their contract. The second defendants are now the registered proprietors of, inter alia, plot 29, 957and I do not doubt that the register of the title is clear of all reference to the plaintiffs or their contract. The second defendants have in their own interests carried on work

6 on the house on plot 29, and roofed it in, but work still remains to be done to complete it, and it is estimated that the current cost of the outstanding work will be 9,600. The value of plot 29 with the house completed satisfactorily would now be 27,500. Turning from the facts to the issues of law, I deal first with s 56 of the Law of Property Act Great doubt has been felt by the court in many cases as to the true scope of that section, but the judgment of Simonds J in White v Bijou Mansions Ltd [1937] 3 All ER 269, [1937] Ch 610 has always been regarded as laying down correctly certain of the limitations on the apparently wide language of the section. Simonds J concluded ([1937] 3 All ER 269 at 277, [1937] Ch 610 at 625) that the only person who could sue on a deed or document in reliance on s 56 was the person who under the document can point to any grant or any covenant purported to be made to or with him. The plaintiffs cannot find any such grant or covenant purported to be made to or with them in cl 11 of the agreement of 18 December 1979 between the bank and the first defendant, or in special condition (b) of the agreement of 13 December 1979 between the first defendant and the second defendants. Therefore, s 56 does not assist the plaintiffs at all in this case. I pass to the plaintiffs main argument founded on Binions v Evans [1972] 2 All ER 70, [1972] Ch 359. The facts of that case were simple. Estate owners (the vendors) had by a somewhat ambiguously worded document granted the defendant the right to occupy a cottage rent free for her life, or until she should give notice to determine her rights. The vendors then sold the cottage to the plaintiffs, the purchasers, subject to the defendant s rights. The purchasers then claimed possession of the cottage on the ground either that on the construction of the ambiguously worded document the defendant was merely a tenant at will, or that the purchasers, as purchasers for value, albeit with notice, were not bound by the contractual licence the vendors had granted to the defendant. The purchasers failed. The majority of the Court of Appeal, Megaw and Stephenson LJJ, decided the case on the basis that the licence agreement between the vendors and the defendant had constituted the defendant tenant for life of the cottage for the purposes of the Settled Land Act If she was tenant for life, then plainly her life interest was not overreached by the conveyance of the cottage to the purchasers, subject to her interest. That ground of decision is not relevant here. Megaw LJ also considered that the purchasers could be restrained by injunction from interfering with existing contractual rights between the vendors and the defendant. That also has no application here as there is here no question of the vendor company performing its contract with the plaintiffs. Lord Denning MR reached the same conclusion, that the purchasers were bound by the defendant s rights and could not evict her, by a different route. He did not agree that the Settled Land Act 1925 applied. He regarded the defendant as a contractual licensee with a right to reside in the cottage for the rest of her life, and not as tenant for life for the purposes of the Settled Land Act He concluded ([1972] 2 All ER 70 at 75, [1972] Ch 359 at 367) that the effect of the making of the agreement between the vendors and the defendant was to give her an equitable interest in land, namely in the cottage, which a court of equity would protect and would enforce against a purchaser with notice. However, he proceeded to consider the position in the alternative ([1972] 2 All ER 70 at 76, [1972] Ch 359 at ): Suppose, however, that [the defendant] did not have an equitable interest at the outset; nevertheless it is quite plain that she obtained one afterwards when the [the vendors] sold the cottage. They stipulated with the purchaser that he was to take the house subject to [the defendant s] rights under the agreement. They supplied the purchaser with a copy of the contract, and the purchaser paid less because of her right to stay there. In these circumstances, this court will impose on the purchaser a constructive trust for her benefit, for the simple reason that it would be utterly inequitable for the purchaser to turn the widow out contrary to the stipulation subject to which he took the premises. That seems to me clear from the important decision of Bannister v Bannister [1948] 2 All ER 133, which was applied by the judge, and which I gladly follow. This imposing of a constructive trust is entirely 958 in accord with the precepts of equity. As Cardozo J once put it: "A constructive trust is the formula through which the conscience of equity finds expression"; see Beatty v Guggenheim Exploration Co (1919) 225 NY 380 at 385, or, as Lord Diplock put it quite recently in Gissing v Gissing [1970] 2 All ER 780 at 790, [1971] AC 886 at 905, a constructive trust is created "whenever

7 the trustee has so conducted himself that it would be inequitable to allow him to deny to the cestui que trust a beneficial interest in the land acquired". I know that there are some who have doubted whether a contractual licensee has any protection against a purchaser, even one who takes with full notice. We were referred in this connection to Professor Wade s article in the Law Quarterly Review (1952) 68 LQR 337, and to the judgment of Goff J in Re A Debtor, ex p The Trustee v Solomon [1966] 3 All ER 225, [1967] Ch 573. None of these doubts can prevail, however, when the situation gives rise to a constructive trust. Whenever the owner sells the land to a purchaser, and at the same time stipulates that he shall take it "subject to" a contractual licence, I think it plain that a court of equity will impose on the purchaser a constructive trust in favour of the beneficiary. It is true that the stipulation (that the purchaser shall take it subject to the rights of the licensee) is a stipulation for the benefit of one who is not a party to the contract of sale; but, as Lord Upjohn said in Beswick v Beswick [1967] 2 All ER 1197 at 1219, [1968] AC 58 at 98, that is just the very case in which equity will come to the aid of the common law. It does so by imposing a constructive trust on the purchaser. It would be utterly inequitable that the purchaser should be able to turn out the beneficiary. It is to be noticed that in the two cases which are said to give rise to difficulty, King v David Allen & Sons, Billposting Ltd [1916] 2 AC 54, [ ] All ER Rep 268 and Clore v Theatrical Properties Ltd and Westby & Co Ltd [1936] 3 All ER 483, there was no trace of a stipulation, express or implied, that the purchaser should take the property subject to the right of the contractual licensee. In the first case, if Mr King had protected himself by stipulating that the company should take the lease "subject to the rights of David Allen", I cannot think that he would have been held liable in damages. In the second case the documents were exceedingly complicated, but if Mr Clore had acquired the theatre "subject to the rights of the licensees", I cannot suppose that this court would have allowed him to disregard those rights. In many of these cases the purchaser takes expressly "subject to" the rights of the licensee. Obviously the purchaser then holds the land on an imputed trust for the licensee. [Lord Denning s emphasis] It has been pointed out that there are differences on the facts between Binions v Evans and the present case. One difference is that the defendant in Binions v Evans was in occupation of the cottage before and at the time of the sale to the purchasers. It is suggested that equity is particularly tender to persons in occupation of land. It seems to me, however, at the protection equity accords to persons in occupation is accorded, so far as unregistered land is concerned, where there is no special statutory provision, because any purchaser has, or is treated as having, knowledge of the rights of the persons in occupation. In the present case, the first defendant had the fullest actual knowledge of the plaintiffs contract with the vendor company. It is thus not significant, apart from any question which may arise from the fact that this is registered land, that the plaintiffs were not in actual occupation or physical possession of plot 29. A more important difference is that in Binions v Evans, the defendant had continuing rights as licensee against the vendors before the sale of the cottage to the purchasers. If, therefore, the defendant s rights as licensee did not bind the purchasers, the defendant would seemingly have had a valid claim for damages against the vendors on the basis of the rule in Stirling v Maitland (1864) 5 B & S 841, [ ] All ER Rep 358. It would be a strange result of a conveyance of the cottage by the vendors to the purchasers expressly subject to the defendant s rights, that the purchasers could override the defendant s rights and leave the vendors liable in damages to the defendant. The provision that the cottage was sold subject to the defendant s rights was thus imposed in some part for the protection of the vendors, as Lord Denning MR seems to have had in 959 mind in his comments on King v David Allen & Sons. In the factual matrix it was necessary for the protection of the vendors to interpret the agreement between the vendors and the purchasers as conferring rights on the defendant as against the purchasers, and this was done through the medium, as Lord Denning MR put it, of imposing a constructive trust on the purchasers for the defendant s benefit. By contrast, there are many cases in which land is expressly conveyed subject to possible incumbrances when there is no thought at all of conferring any fresh rights on third parties who may be entitled to the benefit of the incumbrances. The land is expressed to be sold subject to incumbrances to satisfy the vendor s duty to disclose all possible incumbrances known to him, and to protect the vendor against any possible claim by the purchaser if a third party establishes an overriding right to the benefit of the incumbrance against the purchaser. So, for instance, land may be contracted to be sold and may be expressed to be

8 conveyed subject to the restrictive covenants contained in a conveyance some sixty or ninety years old. No one would suggest that by accepting such a form of contract or conveyance a purchaser is assuming a new liability in favour of third parties to observe the covenants if there was for any reason before the contract or conveyance no one who could make out a title as against the purchaser to the benefit of the covenants. Counsel for the second defendants has drawn my attention to the well-known passage in the judgment of Lord Greene MR in Re Schebsman, ex p Official Receiver [1943] 2 All ER 768 at 770, [1944] Ch 83 at 89 where he said: The first question which arises is whether or not [the debtor] was a trustee for his wife and daughter of the benefit of the undertaking given by the English company in their favour. An examination of the decided cases does, it is true, show that the courts have on occasions adopted what may be called a liberal view on questions of this character. But in the present case, I cannot find in the contract anything to justify the conclusion that a trust was intended. It is not legitimate to import into the contract the idea of a trust when the parties have given no indication that such was their intention. To interpret this contract as creating a trust would, in my judgment, be to disregard the dividing line between the case of a trust and the simple case of a contract made between two persons for the benefit of a third. That dividing line exists, although it may not always be easy to determine where it is to be drawn. Counsel for the second defendants has also referred to the equally well-known sentence in the judgment of du Parcq LJ where he said ([1943] 2 All ER 768 at 779, [1944] Ch 83 at 104): It is true that, by the use possibly of unguarded language, a person may create a trust, as Monsieur Jourdain talked prose, without knowing it [see Molière, Le Bourgeois Gentilhomme, II iv], but unless an intention to create a trust is clearly to be collected from the language used and the circumstances of the case, I think that the court ought not to be astute to discover indications of such an intention. As against that, however, in Bannister v Bannister [1948] 2 All ER 133 Scott LJ in giving the judgment of a Court of Appeal, which included Jenkins J, said (at 136) that it was not necessary that the bargain on which an absolute conveyance was made should include any express stipulation that the grantee was in so many words to hold as trustee. It was enough that the bargain should have included a stipulation under which some sufficiently defined beneficial interest in the property was to be taken by another. If the bargain did include such a stipulation, then the equitable principle on which constructive trust is raised would be applied against a person who insisted on the absolute character of the conveyance to himself for the purpose of defeating a beneficial interest which, according to the true bargain, was to belong to another. In as much as the constructive trust is raised to counter unconscionable conduct or fraud in the sense in which that term is used in a court of equity, the application of the equitable principle to which Scott LJ refers must depend on the facts of the particular case rather than on the mere wording of the particular document. Re Schebsman is, therefore, concerned with a 960 somewhat different problem. It comes in, if at all, in that the absence of a clear declaration of trust may be one of the factors to be borne in mind in considering whether some beneficial interest was, according to the true bargain, to belong to a third party. It may be added by way of a footnote to the judgment of Scott LJ that even if the beneficial interest of the claimant in the property concerned has not been fully defined, the court may yet intervene to raise a constructive trust on appropriate terms if to leave the defendant retaining the property free from all interest of the claimant would be tantamount to sanctioning a fraud on the part of the defendant: see Pallant v Morgan [1952] 2 All ER 951, [1953] Ch 43. That is a further indication that the Schebsman test is not the criterion for the existence of a constructive trust. The first question is, therefore, whether the bargain between the bank and the first defendant included a stipulation to the effect that on acquiring the land the first defendant would give effect, in relation to plot 29, to the contract which had been made between the vendor company and the plaintiffs. That has to be decided on the evidence, and on this point all the evidence in this case is documentary.

9 The second question is then whether the provisions of the Land Registration Act 1925 make any difference, this land having at all times been registered land. There is no evidence in this case that the first defendant paid less for the property it bought because it was buying under an obligation to give effect to the plaintiffs contract in relation to of plot 29. The documents indicate that the property was never offered to the first defendant or anyone else, except subject to the plaintiffs contract. Bearing in mind that there is no basis on which it could be suggested that the bank could be under any obligation to the plaintiffs to complete the house on plot 29 for them, and bearing in mind the first defendant s solicitors letter to Messrs Strutt and Parker, to which I have referred, I conclude that cl 11 was not inserted in the agreement of 18 October 1979 solely for the protection of the bank, like cl 7 of that agreement which sets out other matters subject to which the property was sold, and I conclude that it was a stipulation of the bargain between the bank and the first defendant that the first defendant would give effect, in relation to plot 29, to the contract which had been made between the vendor company and the plaintiffs. If that is correct, it would follow, in my judgment, from the judgment of Scott LJ in Bannister v Bannister, and from the judgment of Lord Denning MR in Binions v Evans, that, unless the Land Registration Act requires a different conclusion, the first defendant, having accepted the land under the agreement of 18 October 1979 and the consequent transfer, holds plot 29 on a constructive trust in favour of the plaintiffs to give effect to the plaintiffs contract. That trust is also imposed on the second defendants by virtue of condition (b) of their agreement with the first defendants. It has been submitted for the defendants that such a conclusion would involve a want of mutuality which is offensive to the traditional approach of the courts of equity, in that it would involve that the plaintiffs acquire rights against the first defendant by virtue of the agreement to which they are not parties, while the first defendant, for want of privacy of contract, has no corresponding right to sue the plaintiffs for specific performance or damages. I do not think that that submission is valid. Want of mutuality is merely a factor which the court of equity may have to consider in deciding whether or not to grant a decree of specific performance. It is not an absolute bar to specific performance: see Price v Strange [1977] 3 All ER 371, [1978] Ch 337. Moreover, there are well established authorities, such as Halsall v Brizell [1957] 1 All ER 371, [1957] Ch 169, to the effect that any person who takes the benefit of a contract must assume the burden. In so far, therefore, as the plaintiffs have sought to assert the benefit of their contract with the vendor company of 30 January 1978, they must submit to the burden of that contract. This does not, however, conclude the matter since I also have to consider the effect of the provisions of the Land Registration Act 1925, plot 29 having at all material times, as I have mentioned, been registered land. In the course of the argument, emphasis was laid on the effect of s 34(4) of the Land Registration Act 1925, which is concerned with the effect on subsequent interests of a transfer of registered land by a mortgagee. Section 34 has, however, to be read with s 20, which is concerned with the effect of the registration of a transfer of registered land by the registered proprietor. The protection 961 conferred by s 34 on a transfer by a mortgagee is thus additional to the protection which is conferred by s 20 on registration of a transfer by a registered proprietor. It has been pointed out by Lord Wilberforce in Midland Bank Trust Co Ltd v Green [1981] 1 All ER 153 at 159, [1981] AC 513 at 531 that it is not fraud to rely on legal rights conferred by Act of Parliament. Under s 20, the effect of the registration of the transferee of a freehold title is to confer an absolute title subject to entries on the register and overriding interests, but free from all other estates and interests whatsoever including estates and interests of His Majesty. In Miles v Bull (No 2) [1969] 3 All ER 1585 at 1589, Bridge J expressed the view that the words which I have quoted embraced, prima facie, not only all kinds of legal interests, but all kinds of equitable interests. He therefore held, as I read his judgment (at 1590), that actual or constructive notice on the part of a purchaser of an unregistered interest would not have the effect of imposing a constructive trust on him. The interest in Miles v Bull (No 2) was the interest in the matrimonial home of a deserted wife who had failed to protect her interest by registration under the Matrimonial Homes Act The contract for sale between the husband, who was the registered proprietor, and the purchaser provided that the house concerned was sold subject to such rights of occupation as might subsist in favour of the wife with a proviso that this was not to imply that the wife had, or would after completion have, any such

10 rights as against the purchaser. Plainly, therefore, the clause was only included in the contract for the protection of the husband who was the vendor. The wife was to get no fresh rights, and in Miles v Bull it was not a stipulation of the bargain between the vendor and the purchaser that the purchaser should give effect to the rights of the deserted wife as against the vendor. Miles v Bull is thus distinguishable from the facts of the present case as I interpret those facts. It seems to me that the fraud on the part of the defendants in the present case lies not just in relying on the legal rights conferred by an Act of Parliament, but in the first defendant reneging on a positive stipulation in favour of the plaintiffs in the bargain under which the first defendant acquired the land. That makes, as it seems to me, all the difference. It has long since been held, for instance in Rochefoucauld v Boustead [1897] 1 Ch 196, that the provisions of the Statute of Frauds 1677, now incorporated in certain sections of the Law of Property Act 1925, cannot be used as an instrument of fraud, and that it is fraud for a person to whom land is agreed to be conveyed as trustee for another to deny the trust and relying on the terms of the statute to claim the land for himself. Rochefoucauld v Boustead was one of the authorities on which the judgment in Bannister v Bannister was founded. It seems to me that the same considerations are applicable in relation to the Land Registration Act If, for instance, the agreement of 18 October 1979 between the bank and the first defendant had expressly stated that the first defendant would hold plot 29 on trust to give effect for the benefit of the plaintiffs to the plaintiffs agreement with the vendor company, it would be difficult to say that that express trust was overreached and rendered nugatory by the Land Registration Act The Land Registration Act 1925 does not, therefore, affect the conclusion which I would otherwise have reached in reliance on Bannister v Bannister and the judgment of Lord Denning MR in Binions v Evans, had plot 29 been unregistered land. The plaintiffs are, therefore, entitled to succeed in this action. The appropriate relief in that event is that specific performance should be ordered as against the second defendants of the sale to the plaintiffs of plot 29, with the completed house thereon, on the terms of the agreement of 30 January 1978 made between the plaintiffs and the vendor company. Order accordingly. Solicitors: F Barnes & Son, Romford (for the plaintiffs); Turner Martin & Symes, Ipswich (for the first defendants); Notcutts, Ipswich (for the second defendants). 962 Evelyn M C Budd Barrister.